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Cheetah Mobile Announces Second Quarter 2016 Unaudited Consolidated Financial Results

BEIJING, Aug. 19, 2016 /PRNewswire/ -- Cheetah Mobile Inc. (NYSE: CMCM) ("Cheetah Mobile" or the "Company"), a leading mobile internet company that provides mission critical applications to help make the internet and mobile experience speedier, simpler, and safer for users worldwide, today announced its unaudited consolidated financial results for the second quarter of 2016.

Second Quarter 2016 Highlights

  • Total revenues increased by 18.1% year-over-year to RMB1,046.7 million (US$157.5 million), exceeding the Company's previous guidance of RMB975 million to RMB1,000 million. The better-than-expected results in total revenues was primarily driven by the Company's strategies to rejuvenate revenue growth in 2016, including refreshing its app products and ad layouts as well as improving its direct sales programs.
  • Mobile revenues increased by 36.7% year-over-year to RMB772.3 million (US$116.2 million). Mobile revenues accounted for 73.8% of total revenues.
  • Overseas revenues[1] increased by 25.3% year-over-year to RMB560.7 million (US$84.4 million). Overseas revenues accounted for 53.6% of total revenues and 72.6% of mobile revenues.
  • Content-driven products made solid progress in the second quarter of 2016, particularly in the U.S. market. According to App Annie's July 2016 data, News Republic, a global mobile news service operator recently acquired by the Company, was ranked as one of the top three news & magazine apps in the U.S. on Google Play. Live.me, the Company's recently launched live streaming app, was ranked as one of the top five social apps in the U.S. on Google Play. In early August, Live.me was also ranked as one of the top ten social networking apps in the U.S. on Apple App Store.

Second Quarter 2016 Key Operating Metrics

  • The number of mobile monthly active users ("Mobile MAUs") was 623 million in June 2016. The number of mobile MAUs from overseas markets accounted for 79.4% of total mobile MAUs in June 2016.
  • Total global mobile user installations was 3,099 million as of June 30, 2016.

Mr. Sheng Fu, Cheetah Mobile's Chief Executive Officer, stated, "We are pleased that the initiatives we have implemented to rejuvenate sustainable growth for our company are starting to bear fruit. In the second quarter of 2016, we achieved better-than-expected total revenue growth. We expect revenues to resume its sequential growth trends in the second half of 2016, primarily driven by steady and sustained revenue growth generated by our existing utility apps. Additionally, we further expanded our content-driven product portfolio to include news service, short video, live streaming and casual gaming. Most notably, two of our content-driven products, News Republic and Live.me, demonstrated strong performance over the past quarter, particularly in the U.S. market. According to App Annie's July data, News Republic, our newly acquired global mobile news service operator with thousands of high-profile media partners worldwide, was ranked as one of the top 3 news & magazine apps in the U.S. on Google Play. Live.me, a live streaming app, was ranked as one of the top 5 social apps in the U.S. on Google Play in July and was ranked as one of the top 10 social networking apps in the U.S. on Apple App Store in early August. While we don't want to downplay the challenges we face in our transformation from a utility app based mobile company to a content-driven mobile company, our initial success proves that we are on the right track and is progressing according to plans. Going forward, we will continue to leverage our over 600 million mobile MAUs to support our content strategy, deliver more personalized and relevant content to our users, and build Cheetah into one of the world's leading mobile Internet companies."

Mr. Andy Yeung, Cheetah Mobile's Chief Financial Officer, commented, "Our total revenues this quarter increased to RMB1,047 million, which well exceeded our guidance and was primarily driven by the success of our strategies to rejuvenate revenue growth in 2016, including plans to refresh our app products and ad layouts as well as improve our direct sales programs. On the cost side, we have also implemented stricter controls and more efficient management of our product promotion strategies. We expect these initiatives to continue to help sustain our growth and improve our financial recovery in the coming quarters. Looking ahead, we remain focused on aggressively executing on our content strategy to establish a sustainable and profitable growth model for the long term. We are confident that by doing so, we will be well positioned to grow our business and deliver additional value to all of our shareholders."

Second Quarter 2016 Consolidated Financial Results

REVENUES

Total revenues increased by 18.1% to RMB1,046.7 million (US$157.5 million) in the second quarter of 2016 from RMB886.2 million in the prior year period. This increase was primarily driven by the Company's organic business growth, which was attributable to the Company's larger global mobile user base compared to the prior year period and its continued improvements in mobile monetization.

  • Revenues from online marketing services increased by 24.0% to RMB939.1 million (US$141.3 million) in the second quarter of 2016 from RMB757.2 million in the prior year period. Mobile advertising revenues represented approximately 77.9% of online marketing revenues in the quarter, as compared with approximately 66.7% in the prior year period. The increase in mobile advertising revenues was driven by the Company's larger global mobile user base compared to the prior year period, and higher demand from advertisers, including third-party advertising platforms, for the Company's mobile advertising services worldwide, as well as the improved monetization of light causal games through in-game advertising.
  • Revenues from internet value added services ("IVAS") were RMB79.6 million (US$12.0 million) in the second quarter of 2016, as compared with RMB109.3 million in the prior year period. The year-over-year decrease was due to the decline of mobile game publishing revenues in China, which was offset by the Company's growth in overseas markets.
  • Revenues from internet security services and others increased by 41.5% to RMB27.9 million (US$4.2 million) in the second quarter of 2016 from RMB19.7 million in the prior year period. The year-over-year increase was primarily driven by higher internet software licensing revenues from Kingsoft Japan.

By platform, revenues generated from mobile business increased by 36.7% to RMB772.3 million (US$116.2 million) from RMB565.1 million in the prior year period. This increase was primarily driven by the Company's larger global mobile user base, and the higher popularity of the Company's mobile marketing services worldwide.

By region, revenues generated from overseas markets increased by 25.3% to RMB560.7 million (US$84.4 million) from RMB447.5 million in the prior year period. This increase was primarily driven by the Company's larger overseas mobile user base and improvements in overseas monetization compared with the prior year period.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues increased by 58.4% to RMB354.7 million (US$53.4 million) in the second quarter of 2016 from RMB223.9 million in the prior year period. This increase was primarily driven by increased investments in content for the Company's content-driven products, higher traffic acquisition costs associated with the Company's third-party advertising publishing business on the Cheetah Ad Platform, and higher bandwidth and internet data center costs associated with increased user traffic worldwide and data analytics.

Gross profit increased by 4.5% to RMB692.0 million (US$104.1 million) in the second quarter of 2016 from RMB662.3 million in the prior year period.

OPERATING INCOME/LOSS AND EXPENSES

Total operating expenses increased by 19.5% to RMB755.0 million (US$113.6 million) in the second quarter of 2016 from RMB632.0 million in the prior year period. Total non-GAAP operating expenses increased by 15.6% to RMB666.6 million (US$100.3 million) from RMB576.6 million in the prior year period.

  • Research and development expenses increased by 54.9% to RMB227.5 million (US$34.2 million) from RMB146.9 million in the prior year period, primarily driven by an increase in personnel-related costs and share-based compensation expenses. The increase in personnel costs associated with research and development was primarily driven by the Company's increased investments in big data analytics and new product development, particularly the development of new content-driven mobile applications and services. Non-GAAP research and development expenses, which exclude share-based compensation expenses, increased by 37.5% to RMB178.1 million (US$26.8 million) from RMB129.5 million in the prior year period.
  • Selling and marketing expenses increased by 16.2% to RMB407.2 million (US$61.3 million) from RMB350.3 million in the prior year period, primarily driven by higher expenses on promotional activities for the Company's content-driven products, as well as on sales and marketing personnel as a result of the Company's strategy to expand direct sales operations. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, increased by 16.9% to RMB405.9 million (US$61.1 million) from RMB347.2 million in the prior year period.
  • General and administrative expenses increased by 33.0% to RMB160.7 million (US$24.2 million) from RMB120.9 million in the prior year period. The year-over-year growth was primarily driven by an increase in expenses associated with higher headcount, share-based compensation expenses and staff benefits. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, increased by 43.0% to RMB123.0 million (US$18.5 million) from RMB86.0 million in the prior year period.
  • Other operating income was RMB40.4 million (US$6.1 million) for the second quarter 2016, which primarily consisted of government grants, subsidies and financial incentives that the Company received for its operations that were not subsidies for research and development projects.

Operating loss was RMB63.0 million (US$9.5 million), as compared with an operating profit of RMB30.3 million in the prior year period.

Non-GAAP operating profit was RMB25.5 million (US$3.8 million), as compared with RMB86.4 million in the prior year period.

Share-based compensation expenses increased by 57.8% to RMB88.6 million (US$13.3 million) from RMB56.1 million in the prior year period.

OTHER EXPENSES

The Company recognized impairment losses of long-term investments of RMB95.2 million (US$14.3 million) for the second quarter of 2016, primarily driven by one-time non-cash write downs in certain investment assets, which the...


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